Corporate management risks/Risks related to changes in tax or environmental legislation, customs and currency regulations / Tax risks / Risks related to court cases

Corporate management risks

One of the main risks of corporate management is the risk of deterioration in its quality arising from changes in structure of those involved in corporate relations and the risk of conflict of interest between various groups of shareholders.

in order to reduce this risk the Company has adopted the following internal documents intended to ensure the balance between corporate management systems: Kubanenergo Rules of Corporate Management, the Statement on insider information, the Statement on information policy, the Statement on dividend policy, the Statement on management bodies, as well as the Order for cooperation with subsidiaries and affiliates.

To strengthen the trust of shareholders, potential investors, employees and the general public the Company has included in the Rules of Corporate Management not only the norms of Russian legislation but also additional statements based on accepted Russian and international corporate management standards.

The Company assesses the risks of deterioration in the quality of corporate management and conflict of interest between various groups of shareholders to be minimal at the current time.

Risks related to changes in tax or environmental legislation, customs and currency regulations

in the near future Kubnanergo does not perceive any significant risk related to changes in legislation to its financial and operating activities.

The Company is building up its work on compliance with the standards of legislation in force in the Russian Federation and, in addition, constantly monitors changes made to it.

That said it is impossible to exclude the risk of changes to tax legislation relating to increases in tax rates and/or changes to the payment systems and deadlines which could lead to a decrease in net profit for the Company, as well as a reduction in the size of dividend payments.

Changes to the customs and currency legislation of the Russian Federation do not affect the Company's operations, and, consequently, do not give risk to compliance risk.

Tax risks

Risks related to the ambiguities of tax legislation norms capable of leading to incorrect calculation and payment of taxes, as a result of which fines could be imposed by the tax authorities. Such actions as monitoring court practice in the field of tax legislation, ongoing staff training, as well monitoring the completeness of calculations of tax liabilities and payment deadlines make it possible to consider for the Company that this risk is minimal within context of the operations of a conscientious tax payer.

Risks related to court cases

Changes in court practice related to changes in the position of supervisory agencies could have an effect on Kubanenergo operating activities. To minimise these risks Kubanenergo is developing a positive court practice on disputed issues related to inconsistencies in implementing legislative norms.